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Advisers in the driver's seat when considering products, services for clients

Apr 2, 2014 @ 3:26 pm

By Trevor Hunnicutt

fiduciary, asset management
+ Zoom

The dust from the regulatory shakeout after the financial crisis is still settling, but today, firms that sell products and services to advisers need more than ever to demonstrate value by helping them navigate their evolution to fee-based services.

“I don't think the client understands what the meaning of fiduciary is,” but they are showing signs of wanting more independent thinking from their advisers, said Mark Pennington, a partner at asset manager firm Lord Abbett & Co., noting the move of assets and advisers into the independent and fee-based space. “Distribution companies like ourselves in the asset management business have to respond.”

Mr. Pennington said that some of his competitors have a self-defeating tendency to see registered investment advisers as one in the same as brokers.

“Ok, maybe RIAs didn't reinvent modern portfolio theory, but if you have a client who says, I'm an RIA and you see on their shirtsleeve fiduciary, they're wearing it on their shirtsleeve, and you say, oh, they're just the same, it's probably not going to turn out too well in the long-term relationship,” he said. “You're telling the client they're not different and they think they're quite different.”

The regulatory environment since the financial crisis — in particular the debate reinvigorated by the Dodd-Frank financial reform law — hung over a conversation about the growth of the independent RIA and so-called hybrid-affiliation model on Wednesday at a panel organized by the Money Management Institute, a trade group of managed accounts providers.

Efforts by the Securities and Exchange Commission, the Labor Department and the Financial Industry Regulatory Authority Inc. to enact that law and other regulations is creating opportunity for firms that sell to financial advisers to deepen their relationships with those clients.

“If you can bring a solution to them that will stave off or at least make it a little bit easier to navigate those fairly complicated waters of ERISA, the Department of Labor and, more recently, Finra's reach into the advisory space, you'll be doing a great service that won't be forgotten,” said Michael Bryan, who directs advisory services for Triad Advisors Inc., a broker-dealer and registered investment adviser.

Mr. Bryan said the regulatory environment is driving a lot of the choices advisers are making.

“I wish I could tell you that advisers are doing nothing but focusing on how to better serve their clients, but that's not the reality, is it?” he asked.

The regulatory environment is moving the needle for brokerage firms too, according to an executive for Pershing who works with independent broker-dealers to retain advisory business.

Michael Partnow, a director at the clearing and custody firm, said he sat in a management meeting in which a broker-dealer executive called in his staff and said, “We need to stop referring to ourselves as a broker-dealer and start calling ourselves a wealth management firm.”

“[Accounts] are leaving these firms and going to the primary third-party custodians in the marketplace so what these broker-dealers are doing is forming affiliations with them for top-producing [investment advisory representatives] that are looking for a service, particularly practice management or individual business consulting that they just don't want to invest in right now,” he said.

He recommended that firms looking to develop their distribution networks consider working with more than just heads of product, but also heads of advisory strategy, transitions and recruiting, who are on the front lines of dealing with advisers or making changes to their platforms to support the switch in branding and offering to wealth manager-style services.

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